CIT vs. Hariram Bhambhani (Bombay High Court)

DATE: February 4, 2015 (Date of pronouncement)
DATE: February 12, 2015 (Date of publication)
AY: 2006-07
FILE: Click here to download the file in pdf format
Unaccounted Sales: The entire unaccounted sales cannot be assessed as undisclosed income particularly if the purchases have been accounted for. Only the net profit on such unaccounted sales can be taken as income

In a survey conducted under Section 133A, it was noticed that the assessee has not accounted some of the sales in the total turnover. In the statement recorded at the time of survey, the Director of the assessee declared a sum of Rs.35 lakhs should be offered to tax. However, thereafter, the assessee explained the statement on the basis that the director was not aware of the intricacies and implications of the statement made by him. The AO rejected the assessee’s explanation and assessed Rs.35 lakhs. On appeal the CIT(A) held that the entire Rs. 35 lakhs cannot be assessed as income but only 4% thereof, being the profit earned on sales of Rs.35 lakhs, could be added to the net profit. This was upheld by the Tribunal. Before the High Court, the department relied on Section 69C and argued that the entire amount of undisclosed sales had to be brought to tax. HELD by the High Court dismissing the appeal:

We are unable to appreciate how Section 69C of the Act which speaks of unexplained expenditure is all at relevant for this appeal. We are not concerned with any unexplained expenditure in this case. In any view of the matter, the CIT(A) and Tribunal have came to the concurrent finding that the purchases have been recorded and only some of the sales are unaccounted. Thus, in the above view, both the authorities held that it is not the entire sales consideration which is to be brought to tax but only the profit attributable on the total unrecorded sales consideration which alone can be subject to income tax. The view taken by the authorities is a reasonable and a possible view. No substantial question of law arises.

3 comments on “CIT vs. Hariram Bhambhani (Bombay High Court)
  1. Right view of the honorable court.

    Department may itch for more tax revenue that does not mean it can walk away from the basic principle of taxation vide Art 265 and if the statute rules fails the test of due process principle, then to that extent the statute fails.

    only the profit is taxable revenue not any other things.

    so hon court has really meaningfully worked on justice being an ideal process.. which believes in ‘means’ and certainly not ‘ends’ thought that dept of revenue need to understand.

    you cannot blindly apply sec 69c my dear revenue!

    that would mean department suffers from jaundiced eye!

  2. vswami says:

    To share: On the first blush, without the need for reading through in detail, or embarking on any case study, believably, anyone can only agree to fully agree that the Revenue’s stance, verges on what has come to be widely criticized as ‘tax terrorism’. Further, such obnoxious developments, if and when reported, simply go to raise serious doubts in anyone’s mind whether what is being lately trumpeted and pleaded for, more so conceded by the FM itself urging that – the Revenue ought not but require to turn around and switch over to a tax payer friendly, as opposed to ‘adversarial’ administration of tax laws, remains a pipe dream, or a psychological ploy. No doubt, over the decades, the law on taxation of “income”, has been so increasingly subjected to, by the legislature, violent modifications and quite many drastic changes, to say that today, what is being taxed / or taxable is nothing but “income’ in its strictly legal sense as envisaged in the basic charter itself, is a blatant self deceit. Even so, in one’s long standing conviction, it is so ridiculous that repeatedly such issues happen to be raised and pursued by the Revenue, relentlessly, with no checks and balances or any sort of oversight or effective monitoring from the topmost level of the hierarchy , as to cut at the very root of so called idea of “rationalisation” , a concept that appears to have lately found favor with the FM itself, albeit expected to have an overall control.

    On the particular statutory provision i.e. section 69 C (-Unexplained expenditure , etc.) that has been invoked by the tax officer in the reported case, among others, for a critique / the viewpoints shared on the true scope of the like provision – section 69A (-Unexplained income, etc.) , albeit in a varying vein, a couple of articles published in Taxman journal on the topic of “Illegal business” may provide clues for an independent study of the instant case.

  3. vswami says:

    TAG (link)
    All you wanted to know about: Tax terrorism | Business Line

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